What to do after you hit it big
Bill Myers won half of a $30 million lottery jackpot, he took a
trip to Las Vegas.
Relax. This story doesn't have a tragic ending.
Myers behaved responsibly after his 1995 bonanza -- choosing a path
that's almost a textbook example of the right thing to do when you
receive a financial windfall such as a lottery jackpot.
A gambling man who likes to wager within his
limits, Myers returned home from Vegas with his fortune intact.
Then the 57-year-old took early retirement.
And what a retirement. In addition to a pension
from his 19-year job, he gets $395,000 a year after taxes for 20
years. He turned 62 in the autumn of 1999 and filed for Social Security
The first moves
The former truck driver had his eye on the long haul. He took a
30-day leave of absence right after he won, and by the time he turned
in his resignation he had hired an attorney to advise him, bought
a house in another neighborhood and set up a trust fund to receive
and invest his prize money.
Did he make any mistakes? Sure, he says with
a sharp laugh: "I spent too much money."
Who wouldn't? A spending spree is to be expected
in the weeks and months after a pile of cash drops from the sky.
Overall, Myers handled winning a windfall well.
By accident or design, he followed most of the
rules suggested by experts who regularly advise people who come
into large sums of money, whether through lottery jackpots, inheritance,
divorce, bonuses, lawsuit settlements or severance packages:
- Don't do anything rash. At least for a few
weeks, keep your job, keep your house and keep in touch with close
friends, relatives and advisers (including spiritual leaders).
Don't make any promises.
- Talk to an accountant or tax attorney (or
both) to figure out what your tax options are and to know how
much money you will end up with after taxes.
- Make sure your tax adviser finds out what
your payment options are, and discuss those options in depth before
you pick one. You might be able to choose between getting a lump
sum, receiving annual checks for a number of years or getting
- After you choose your payment option and
you know how much you'll get after taxes, hire an investment adviser.
- Contact a Web site for certified financial
planners, such as the Certified
Financial Planner Board or the National
Association of Personal Financial Advisers.
Experts are emphatic about the order in which
you do these: first the tax expert, then the investment adviser.
A tax expert "can tell you how much you're keeping," says Philip
M. Susswein, a trust and estates lawyer in New York City. "That's
why I say talk to this person first instead of an investment analyst,
because the investment analyst needs to know how much you're keeping."
If your numbers come in
Here's additional advice, specifically for lottery winners:
- Get out of the house. Better yet, get out
of town, especially if you have been subject to news coverage.
Check into a hotel or stay for a while at the home of a friend
- Get an unlisted phone number. If you already
have an unlisted number, change it.
- Take a leave of absence from your job and
treat your time off as a working vacation as you consult your
financial advisers and make plans.
- Don't expect to get any useful advice from
the lottery agency. "Financial planning? That's not what we do,"
says a spokeswoman for the Minnesota Lottery.
- If you can collect the jackpot in a lump
sum, do so.
- Keep in mind that a jackpot isn't so big
after the IRS takes a bite out of the winnings. Let's say you
win a $1 million jackpot, which you will receive in 20 annual
payments. After 28 percent is withheld for federal income taxes,
your annual check is $36,000. If you have to pay state and local
income taxes, your check shrinks further.
- Myers followed the rules. "The first thing
I did was to go to my job, informed them," he says. He took a
leave of absence and got out of town to have some fun and think
awhile. He hired a lawyer and a financial adviser. He has stayed
on good terms with his family. He moved. His number is unlisted.
Even so, he doesn't want to publicize which city and state he
lives in because the tsunami of charity solicitations that used
to swamp his mailbox finally has subsided.
Lump sum or annuity?
Myers didn't have a choice whether to take the jackpot as a lump
sum or over 20 years because his brother bought the ticket and selected
the annuity option. That's too bad, says Marcia McMillan, a certified
financial planner with American Financial Advisers in Brookfield,
Wis., because it's almost always best to take a lottery jackpot
as a lump sum.
With other kinds of windfalls, such as inheritances,
circumstances dictate whether it's best to take a lump sum, a series
of payments or to defer the windfall. All three options might be
available to a spouse who inherits a retirement plan or wins a portion
of a retirement plan in a divorce settlement. A tax specialist such
as a certified public accountant or a tax attorney can help you
choose which option is right for you.
"What I would look for is someone who asks
me legitimate questions about myself and what my goals are, and
someone who has both the licensing and the education to qualify
themselves as a financial adviser," McMillan says. "I would look
at the way they get paid. Do they charge a fee to give objective
advice, or are they looking for you to make a certain kind of transaction?"
The mistakes they make
Even when they get good advice, people who get windfalls make goofs.
"The No. 1 mistake is that people think short
term," McMillan says, adding that people should ask themselves when
they really need the money: now, in retirement or sometime in between
-- for example, when the kids go to college.
Rob Sanford, a certified financial planner and
author of a book of financial advice called Infinite Financial Freedom,
says lottery winners are especially in danger of being lulled into
complacency. He offers an example of someone who wins a jackpot
paying $50,000 annually for 20 years. The winner lives on the money
instead of investing it and takes a two-decade vacation. "Twenty
years later, they're 20 years older with no training or work experience
for the last 20 years. That can really whipsaw them."
Another common mistake is carelessness. "Because
it's 'found money,' for some reason they care less about paying
a penalty for doing it the wrong way," McMillan says, explaining
that a recipient of a windfall might lose 30 percent of an investment
and not really mind.
Imprudence is more a mistake of youth, says
John Fahy, an accountant and lawyer in New Jersey. Adults over 40
tend to invest windfalls carefully, but "younger people often want
to live large and they buy boats and big houses. When the bills
come in, it becomes difficult to pay the piper."
Spend a few bucks
Perhaps the hardest thing to do is to practice moderation when immoderate
amounts of money come into your life. Of course you shouldn't blow
all the money quickly, but neither should you feel guilty for having
a little fun. In an advice column for lottery winners, Sanford says
to go ahead and blow 10 percent of the first check.
Me, I would buy a red Porsche 911. I would light
a $50 cigar with a burning $100 bill and send pictures of the deed
to my friends and enemies.
With sudden riches comes confusion, especially
for people who grew up working class or middle class. What do you
do when you are handed moist, hot linen napkins after a meal? How
much do you tip a bathroom attendant?
Will money change you? Will it change your friends?
"If you inherited a lot of money or suddenly came into a lot of
money, your life will change, and not always in ways that are predictable,"
Susswein says. "If you're not grounded and don't have a close group
of trusted advisers, you'll be a little adrift for a while."
You need training to be wealthy. Unfortunately,
there is no Nouveau Riche Academy.
How has Myers, winner of an annual payout of
almost $400,000, dealt with it? Fine, thank you. He spent about
$700,000 for a new house on 2¼ acres with a pond and a pole barn.
He drives a Lincoln Town Car and his wife drives a Ford Explorer.
He helps out his 80-year-old mother, five sisters and his grown
And he has fun.
"We still go to Vegas," he says. "We've gone
four times in a year."